TOP STORIES -- Jan. 25-30

GDP Rises at 4% Rate, Weaker Than Expected

The U.S. economy grew at a weaker-than-expected 4% annual clip in the fourth quarter, renewing concerns that business caution may delay full recovery and a snapback of hiring.

Growth of the gross domestic product, a measure of all goods and services produced in the U.S., was respectable by historical standards. And news of it was accompanied by a better-than-expected measure of consumer confidence and a report on Chicago-area manufacturing suggesting the pace of economic activity quickened last month.

But the 4% pace was less than half the blazing 8.2% rate that the economy posted for the third quarter and less than the rate of almost 5% many economists had been predicting. For all of 2003, GDP rose at a 3.1% rate.

The report damped trading on Wall Street on Friday, pushing major indexes lower. For the week, the Dow Jones industrial average was off 0.8%, the Nasdaq composite fell 2.7%, and the S&P; 500 gave up 0.9%.

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Fed’s Words Spur Rate-Hike Speculation

The Federal Reserve voted to leave interest rates at 45-year lows, but its statement accompanying the decision was seen by investors as a first step toward an eventual rate increase.

The statement set off renewed debate about when the central bank might raise rates -- a decision that could affect the presidential race and slow an economy that has been recovering partly because of low rates on mortgages and other loans.

Many economists said the Fed was unlikely to raise rates before the November election.

Members of the central bank’s policymaking Federal Open Market Committee voted unanimously to leave its signal-sending federal funds rate at 1%. The rate, which banks charge each other for short-term loans, has been at that generational low since June.

But in their accompanying statement, Fed policymakers replaced assurances that they would keep rates low for “a considerable period” with the slightly more tepid promise to “be patient” about raising them.

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Pixar Ends Movie Partnership With Disney

Pixar Animation Studios abruptly halted talks to extend its 13-year partnership with Walt Disney Co., apparently ending one of the most lucrative marriages in movie history.

“After 10 months of trying to strike a deal with Disney, we’re moving on,” said Pixar Chief Executive Steve Jobs.

The move stunned Disney executives and Wall Street analysts who believed a deal eventually would be hammered out. Collapse of the talks came as particularly bad news for Disney Chairman Michael Eisner, under pressure from investors to shore up Disney’s fortunes and continue the partnership with the animation company behind the blockbuster hit “Finding Nemo.”

Burbank-based Disney said the deal fell through because it would have been forced to forgo “hundreds of millions” in potential profits from coming movies.

In the last decade, Disney and Pixar have had a perfect track record with a string of remarkably successful computer-animated hits. Under the current contract, Pixar has two remaining films with Disney.

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Tenet Plans to Sell 19 Hospitals in the State

Tenet Healthcare Corp. plans to put up for sale nearly a third of its medical facilities, including 19 in California, a move expected to vastly alter the healthcare landscape in the Los Angeles region.

The Santa Barbara-based company, battered by scandal and financial losses, said a major reason for the sale was a state mandate to retrofit its buildings to meet earthquake safety standards. Tenet said it faced $1.6 billion in costs for upgrades at the hospitals to be sold.

Tenet, the largest hospital chain in the state, said it hoped to find buyers for the facilities but couldn’t guarantee that they all would remain open. Also uncertain is what Tenet’s plans will mean for the 15,000 employees who work at the 19 California hospitals being put on the block.

Tenet plans to shore up its finances by selling a total of 27 medical facilities nationwide, including eight in Louisiana, Massachusetts, Missouri and Texas. The proposed divestiture is expected to be completed by year-end, generating estimated net proceeds of $600 million.

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Delay in Stewart Case Is a Blow to Prosecution

In a stunning setback for the government in the Martha Stewart trial, the judge postponed the star witness’ testimony after ruling that federal prosecutors unfairly held back a potentially crucial FBI memo from the defense.

The memo calls into question whether prosecution witness Douglas Faneuil could remember who told him to phone Stewart with what the government said was an illegal insider stock tip. Faneuil had been scheduled to take the stand to lay the keystone of the fraud and obstruction-of-justice case against Stewart and her former stockbroker. Now he won’t testify until at least Thursday, and his credibility could be damaged if defense lawyers can show that his story has changed.

The judge’s ruling forces the government to call its witnesses out of order, which chief prosecutor Karen Patton Seymour complained would weaken her presentation. U.S. District Judge Miriam Goldman Cedarbaum denied a request by Stewart’s lawyer, Robert G. Morvillo, to declare a mistrial or to bar Faneuil from testifying.

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Atty. Gen. Lockyer Sues Supermarket Chains

California’s attorney general sued the chains involved in the Southern California supermarket strike and lockout, alleging that their mutual-aid pact violated antitrust laws.

The pact, whereby the stores agreed to share an undisclosed amount of cash during the dispute, “hurts consumers by discouraging competitive pricing” by the chains, Atty. Gen. William Lockyer said in a statement.

The companies involved in the bitter, 3 1/2-month dispute are Safeway Inc., which owns Vons and Pavilions; Ralphs parent Kroger Co.; and Albertsons Inc.

They are bargaining as a single unit with the United Food and Commercial Workers union. As part of their collective effort, they formed the mutual-aid pact but have kept the agreement shrouded in secrecy.

Filed in U.S. District Court in Los Angeles, the lawsuit seeks an injunction that bars the stores from implementing their agreement.

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SBC Profit Drops 62% as Sales Decline 10%

SBC Communications Inc. posted its worst full-year financial performance since it bought its way into the California phone market seven years ago, as fourth-quarter profit plunged 62% and sales fell year-over-year for the 13th straight quarter.

California’s dominant local phone carrier said it earned $905 million, or 27 cents a share, in the fourth quarter, down from $2.4 billion, or 71 cents, a year earlier. Revenue fell 10% to $10.1 billion.

SBC Chairman Edward E. Whitacre Jr. said pinched profit margins should stabilize in the current quarter and sales should start climbing toward year-end.

But analysts cautioned that the telecom company should expect to see its market share continue to erode and its prices to fall.

For 2003, SBC earned $8.5 billion, or $2.56 a share, but about $2.5 billion of that came in an accounting change. It earned $5.7 billion, or $1.69, in 2002. Earnings before one-time items and accounting changes came to $6 billion, the lowest since it bought Pacific Telesis Group in 1997. Revenue fell 5% to $40.8 billion.

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WGA Keeps Chief Amid Doubt Over Credentials

The board of the union representing Hollywood TV and film writers has decided that Charles Holland should remain president, despite questions over whether he embellished his military and college athletic careers.

The vote at the Writers Guild of America, West, was 10 to 6 in Holland’s favor. Directors who supported him said he was a skilled negotiator who had always been honest in his dealings with the board. But those who voted against Holland said the guild’s credibility had suffered. Holland declined to comment.

The WGA board tapped Daniel Petrie Jr. as vice president. He succeeds Holland, who was named to the top spot when Victoria Riskin resigned. She left after an investigation determined she had been ineligible to run for reelection in September.

The board also formed a new governance committee to review a range of election procedures that have been questioned in the wake of the Riskin controversy.

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Glendale Agrees to Pay $25,000 to Settle Claims

The city of Glendale has agreed to pay $25,000 to settle charges that it engaged in Enron-style trading schemes to create artificial shortages during the California energy crisis.

Federal regulators agreed to end their probe of Glendale’s market strategies, including partnerships with Enron Corp. and Coral Energy.

According to the preliminary deal with the staff of the Federal Energy Regulatory Commission, “Glendale does not admit, and expressly denies, that the allegations ... have any merit” or that any of Glendale’s trading practices broke the law.

FERC had implicated Glendale in ploys that involved creating false congestion on electricity-transmission lines, inflating demand and selling nonexistent backup energy through its partnerships with Enron and Coral, an affiliate of Shell Oil.

The accord requires formal FERC approval.

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From Times Staff

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For a preview of this week’s business news, please see Monday’s Business section.